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Western Debt Exceeds 200 Year High, IMF Warns Of 1930's Depression Style Write Offs Ahead

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According To The IMF  in a “White Paper”  just release at the end of December 2013, warns much of the Western world will require defaults, a “savings tax” and “higher inflation” to clear the way for Western Economic recovery as debt levels reach a 200-year high. This according to a new report by the International Monetary Fund. pdf

The IMF working paper states that debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, either negotiated 1930s-style write-offs or the standard mix of measures used by the IMF in its “toolkit” for emerging market blow-ups. This would mean that America’s low income and middle class would feel the financial pain the most, as they did during the Great Depression.


“The sheer magnitude of the problem suggests that restructuring will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point,” said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff.  How will the public react now that the IMF has made public their “White Paper” that announces the coming 1930′s style depression that lies ahead?


The IMF white paper said policy elites in the West still are still clinging to the illusion that rich countries are different from poorer regions and can therefore chip away at their debts with a blend of austerity cuts, growth, and tinkering (“forbearance”). But history reveals that this simply is not true.


The presumption is that advanced economies “do not resort to such gimmicks” such as debt restructuring and repression, which would “give up hard-earned credibility” and throw the economy into a “vicious circle”. (Depression)

Chart From

But the paper says this mantra borders on “collective amnesia” of European and US history, and is built on “overly optimistic” assumptions that risk doing far more damage to credibility in the end. It is causing the crisis to drag on, blocking a lasting solution. “This denial has led to policies that in some cases risk exacerbating the final costs,” it said.

While use of debt pooling in the eurozone can reduce the need for restructuring or defaults, it comes at the cost of higher burdens for northern taxpayers. This could drag the EMU core states into a recession and aggravate their own debt and ageing crises. The clear implication of the IMF paper is that Germany and the creditor core would do better to bite the bullet on big write-offs immediately rather than buying time with creeping debt mutualisation.

The paper says the Western debt burden is now so big that rich states will need same tonic of debt haircuts, higher inflation and financial repression – defined as an “opaque tax on savers” – as used in countless IMF rescues for emerging markets.

“The magnitude of the overall debt problem facing advanced economies today is difficult to overstate. The current central government debt in advanced economies is approaching a two-century high-water mark,” they said.

Most advanced states wrote off debt in the 1930s, though in different ways. First World War loans to the US were forgiven when the Hoover Moratorium expired in 1934, giving debt relief worth 24pc of GDP to France, 22pc to Britain and 19pc to Italy.


This occurred as part of a bigger shake-up following the collapse of the war reparations regime on Germany under the Versailles Treaty. The US itself imposed haircuts on its own creditors worth 16pc of GDP in April 1933 when it abandoned the Gold Standard.

Financial repression can take many forms, including capital controls, interest rate caps or the force-feeding of government debt to captive pension funds and insurance companies. Some of these methods are already in use but not yet on the scale seen in the late 1940s and early 1950s as countries resorted to every trick to tackle their war debts.

The policy is essentially a confiscation of savings, partly achieved by pushing up inflation while rigging the system to stop markets taking evasive action. The UK and the US ran negative real interest rates of -2pc to -4pc for several years after the Second World War. Real rates in Italy and Australia were -5pc.

Both authors of the paper have worked for the IMF, Prof Rogoff as chief economist. They became famous for their best-selling work on sovereign debt crises over the ages, This Time is Different: Eight Centuries of Financial Folly.

They were later embroiled in controversy over a paper suggesting that growth slows sharply once public debt exceeds 90pc of GDP. Critics say it is unclear whether the higher debt is the problem or whether the causality is the other way around, with slow growth causing the debt ratio to rise to faster.

The issue became highly politicised when German finance minister Wolfgang Schauble and EU economics commissioner Olli Rehn began citing the paper to justify eurozone austerity policies, over-stepping its more careful claims.

Critics says extreme austerity without offsetting monetary stimulus is the chief reason why debts have been spiralling upwards even faster in parts of Southern Europe.

The weaker eurozone states are particularly vulnerable to default because they no longer have their own sovereign currencies, putting them in the same position as emerging countries that borrowed in dollars in the 1980s and 1990s. Even so, nations have defaulted through history even when they do borrow in their own currency.

Critical reads: More News Mainstream Media Chooses To Ignore By Josey wales, Click Here!

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    Total 9 comments
    • Discerner

      Since when does a pseudo international organisation underwritten by a private company (World Bank) whose sole focus is to give greater returns each year to it’s shareholders actually have the worlds best interest in mind. They treat the 99% of us like dairy cattle during the day milking us until we are dry in the morning and evening, then at night treat us like sheep, fleecing us for whatever is left.

      • equal eyes

        Not to worry my friend, banksters drive cars and cars have accidents…often un-accidentally.

        Visualize to make it happen.

        We the people can utilize our own form of mind-control to bring down TPTB.

        Become a Thought Warrior and imagine the worst befalling the corrupt maniacs who need to be stopped by any and all means.

        Hey, I’m not angry for nothing. We have to stop the b-tards. They’re killing us all.

      • Josey Wales

        The New World Order Already has control. Or this “White Paper” would not be made public. Since when did any man, women , or child, feel that any government had their best interest in mind? Oh, you mean the same sheeple who hang on Obama’s every word, like good little slaves? Negative. Welcome to the New World Order. Like it or not!

    • Anonymous

      First I have to make this remark: The president is the punching bag for monetary policy even though he did not directly affect monetary policy. The Federal Reserve is rarely mentioned on television as being the mastermind of the economy. The second thing I need to say is that the FEDERAL RESERVE was not created so that it profits. RATHER it was created so that a select few private insider commercial banks become extremely profitable as the result of their ties to the FEDERAL RESERVE, and its ability to subsidize FRACTIONAL RESERVE LENDING. These commercial banks control the Federal Reserve and its policies. The FED, for example, carry out policies that causes little banks to fail. These failed banks are taken over by the big insider banks furthering the consolidation of the nation’s monetary reserve.

      The manner in which banks create money ex niholo (out of thin air) is by the use of a scheme called fractional reserve lending. When you rent a DVD movie, you are explicitly told not to copy and distribute the movie. Why is that illegal? Because if you copy and distribute the movie, the movie creators would loose profit as a result of the EFFECT of the counterfeiting. A long time ago it was decided that a deposit to a bank is legally a loan to the bank. Since case law (though English, but USA courts have followed almost similarly) established in 1811 (Carr vs Carr, in case you were wondering) that the money you put in your bank account no longer legally belongs to you – instead, you are lending it to the bank, which in turn is paying interest on the loan. Money is a fungible item, and it is not treated as a bailment when you deposit your money in the bank. This means that if you have $100k and deposit it in a bank, the bank can loan the $100k to someone else. What happens, though, is that the person that borrows the money soon uses it to buy something, a house, perhaps and the seller of the house takes that money and most likely deposits it in a bank, perhaps the same bank or a different bank. What happens is that the bank that just received that $100k will loan that money out again, and the inflationary cycle continues. The Money supply expands. In this situation there are two conflicting titles to the money 1)the person that deposits it and 2) the person that borrows it. This is precisely why the FEDERAL RESERVE was created, so that conflict can be reduced to a government/public subsidy. Further problem is that as the money supply expands, only the principle exist in the money supply. In order for every borrower to pay back the debt, they need to depend on more credit to provide the interest payments. If the credit stops the economy goes into a recession-depression, and the money supply shrinks. This is officially called the BUSINESS CYCLE. The money supply created by private banks is over 95% of the money in the economy. Just take the M0 money supply and subtract from the M2 or M3.

      NOW there are two conflicting ideas about where income tax revenues goes. The most elaborate research is the Grace Commission Report:
      “100% of what is collected isabsorbed solely by interest on the Federal Debt … all individual income taxrevenues are gone before one nickel is spent on the services taxpayers expectfrom government.”
      -Grace Commission report submitted toPresident Ronald Reagan – January 15, 1984

      Then, there are reports from the government that show a pie chart of what the income tax revenues is used for: 38% goes to HUMAN RESOURCES; 30% goes to CURRENT MILITARY, 18% goes to PAST MILITARY; 8% goes to GENERAL GOVERNMENT; and 6% goes to PHYSICAL RESOURCES.

      I really honestly do not know which is true, but what i do know is that the NATIONAL DEBT is fraudulent, because the treasury makes bonds which are purchased by private commercial banks using money from the selling of old bonds, and the multiplicity effect of the fractional reserve scheme. This scheme is inflationary on both ends, the expansion of credit and the introduction of new money into the system. If you are going to have an inflationary system why not for the public good, for public programs?

      • boutaswell

        I have never really read anything about how banking works beyond a book I purchased in the mid 80′s about how banks draw interest on money you deposit, and other hokey stuff. Anytime you have money in the banking system, the example above, while the money was just deposited in your account, you won’t see it immediately. It is pending. BS, it’s 2014, it’s electronic. Those little electrons travel at the speed of light. A deposits money from B. The check is scanned, the “machine” checks B’s bank account, there is money there to cover the check, the money gets credited to your account…all within about 5-10 seconds.

        So….why does it take up to 3-7 “workdays” for the money to show in your account? Because the bank is getting interest or whatever credited to it by the Fed. The bank is getting some tiny %. Those tiny %’s add up over time. The bank is making money off your deposit.

        Does that sound right Anonymous?

        • Joe Miller

          For money to travel between banks, it needs to go through the central clearing house that is provided by the Federal Reserve. This normally happens in the middle of the night. So, theoretically, a check will only clear after a 24-hour delay. One thing that used to add to this delay is that bank clerks working in the back office would have to enter checks in to their system before it could go through the clearing process. Things have been automated more, though, so normally a check should clear in two days. I don’t know what else a bank does to hold it up longer than that.

    • boutaswell

      Does someone want to tell me what a “Savings Tax” is??? More redistribution of whatever wealth created after this hokey IMF plan is put in place?

      • Joe Miller

        A “Savings Tax” means that they steal a percent of your savings to pay off their gambling debts. They did that in Cyprus, which is one of the reasons that BitCoin went up. There is a story of an Austrian town who made up their own money and had you pay a fee to keep it in savings. The result is that everyone spent whatever they earned as soon as they earned it and their economy greatly improved as a result. But I don’t understand what happens to people who save up money for retirement when they can’t work to earn anything.

    • TheZeppelin

      Another Article on BIN states the implementation of a tax on the top 1% and their US based assets, so they withdraw and start offshoring money collapsing the stock market in the process. This is to occur in between April and July 2014.


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